Gathered on one side of the cabinet table were the newly-installed Prime Minister Julia Gillard, her Treasurer Wayne Swan and her Resources Minister Martin Ferguson. On the other were the heads of Australia's three big mining companies: BHP Billiton, Rio Tinto and Xstrata.

Absent were the key people from the Treasury - the ones who really understood the tax being discussed.

As the then Treasury head Ken Henry later told a Senate committee: "We were not involved in the negotiations, other than in respect of crunching the numbers if you like and in providing due diligence on design parameters that the mining companies themselves came up with."

The smartest people were kept out of the room. They were ferried draft agreements and asked to examine them quickly. They were unable to test with the miners the propositions they were putting to the government.

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The 1½-page heads of agreement signed by the ministers and executives on July 1, 2010, replaced the 40 per cent resource super profits tax with a much weaker 30 per cent minerals resource rent tax applying only to coal and iron ore. An "extraction allowance" cut the actual rate paid to 22.5 per cent. It would be paid only if the profits themselves reached a much higher hurdle.

And then there was the drafting error.

The agreement allowed "all state and territory royalties" to be deducted from the tax.

Ferguson thought the words referred to "royalty rates that applied, or changes to royalty rates that were scheduled to apply in the future, as at 2 May 2010''.

The interpretation made sense. Those were the royalty rates referred to in the original super profits tax. Agreeing to refund whatever any state government chose to charge in the future would expose the Commonwealth to an uncontrollable expense.

But read baldly, that's what the ministers had signed up to.

Western Australia promptly lifted its iron ore royalty from 5.6 per cent to 7.5 per cent. It now grabs money the ministers believed the federal government would get.

Appearing before the Senate, treasury official David Parker later tried to explain the less-than-precise drafting this way: "This is a document which is 1½ pages long. One could say that the heads of agreement is, to use a musical analogy, a rather staccato document."

The agreement allowed the mining companies to do more than deduct their royalty payments from the new tax. It allowed them to ''grow'' the amount they could deduct at the long term bond rate plus 7 per cent, if low profits meant they owed less resource tax than the royalty payments.

The concession means the miners are unlikely to pay much of the new mining tax for some time to come.

Julia Gillard and her ministers brought peace on July 1, 2010, but at a heavy financial price.

335 comments

There seems to be a pattern emerging with this Gillard government - announce a project, stuff up the funding of it(or declare the States will help fund) and then publically blame the States for creating the shortfall when they weren't part of the original deliberations. It's happened with the MRRT/Royalties and it's happened with NDIS........ does this government have any ability to perform beyond a thought bubble? The SS Gillard sails on into history.............

Commenter

Smack

Location

City of the Fallen

Date and time

February 14, 2013, 3:39AM

Smack imagine the silent glee from the mining execs, when into the room walked Jules, Wayne and Marty without any PhD's from Treasury or Resources.

They probably didn't even have a laptop to do any of the complex maths, like addition and subtraction.

The brains trust of the Australian government in full swing. They probably walked in and said "we're here to help". They sure did.

Commenter

Hacka

Location

Canberra

Date and time

February 14, 2013, 4:08AM

Swan is an abosolute lightweight and a major contributing factor towards both Gillard and Labor's assured demise. Hands up those who think the hapless Swan will retain his seat at the election?

Commenter

Tim of Altona

Date and time

February 14, 2013, 4:21AM

smackWhat wags you and Hacka are! First the MRRT in any form was a disgrace that would cripple mining investment and thus the Australian economy. Now it's a disgrace because it's not raising as much revenue as it should!

Commenter

fred

Date and time

February 14, 2013, 4:38AM

@ TIm of Altona. No no I wont hear of it. Wayne is the worlds greatest treasurer - the Stephen Bradbury award if there ever was one!

Commenter

Chameleon

Date and time

February 14, 2013, 4:44AM

Why don't they just say Mr Swan was involved? People will automatically know they've "done a Swanny". He picks the easiest part of the Henry review for his continued "class warfare" and still he gets duped.

At least Ms Gillard is consistent; failed lawyer, failed PM.

Ferguson should not of attended as he is way to intelligent to sit at this meeting. With his support of nuclear fuel processing we would have a credible new business model and real profits to tax. Unlike these fools trying to strangle the golden goose and ending up looking like geese themselves.

Commenter

Beetle007

Date and time

February 14, 2013, 4:46AM

Smack, the only thing I disagree with regarding your comments is the word "emerging" - your tense is wrong! It has well and truly "emerged"! It is simply about Gillard and Swan and their desire for power.

Commenter

The Commentator

Location

Hawks Nest

Date and time

February 14, 2013, 4:48AM

When you don't want the tax in the first place.......Maths LNP style.......Pie = 100% Have state's take Pie = nothing left. Then you can develop the reverse complaint strategy........if the tax does make money complain that the miners cannot afford it ......if the tax makes no money complain that it did not. Either way be as negative as possible.

Commenter

Bazza

Date and time

February 14, 2013, 4:57AM

TimLudicrous expecting those who agree with you to be capable of reading your comment and putting their hands up at the same time!

Commenter

bernie

Date and time

February 14, 2013, 4:58AM

Tim a poll conducted in Qld a couple of weeks ago (ReachTel i think) suggested the people of Lilley might have also made up their mind about Swannie. 212 days.